Netflix Q1 Earnings: $4.52 EPS, $9.28B Revenue Forecast

Key Takeaway

• Netflix's shares surged 26% YTD, setting high expectations for Q1 earnings with a forecast of $4.52 EPS on $9.28 billion revenue.
• Analysts are optimistic but cautious, noting the stock's 450% rise in 18 months and questioning future growth sustainability.
• Strategic moves like password sharing crackdown and new ad-supported tier are key to Netflix's subscriber growth and investor interest.

Netflix's Earnings Anticipation

Netflix, the leading video-streaming service, is poised to kick off the technology sector's first-quarter earnings season, with its shares having rallied nearly 26% since the year's start, outperforming the S&P 500. This surge sets a high bar for the company, especially following two consecutive quarters of significant post-earnings share price increases. Despite falling short of earnings expectations last quarter, Netflix exceeded revenue estimates and total membership counts, adding 13.1 million subscribers and surpassing Wall Street's 8 to 9 million estimate, partly due to its stringent crackdown on password sharing.

Analysts, polled by LSEG, anticipate Netflix to report earnings of $4.52 per share on approximately $9.28 billion in revenue for the first quarter. The subscriber addition figure, a critical metric, is expected to be around 4.59 million. Wall Street's optimism is reflected in several firms raising their price targets for Netflix, with Morgan Stanley and JPMorgan among those adjusting their expectations upwards, citing ongoing subscriber growth from paid sharing initiatives.

Wall Street's Mixed Views

Despite the general optimism, some analysts express caution, pointing to the substantial 450% increase in Netflix's share price over the last 18 months as a potential setup challenge. Concerns revolve around whether the stock can continue to appreciate without significant upward revisions to consensus estimates for 2024-2025. The benefits from the crackdown on password sharing, which significantly boosted subscriber numbers in recent quarters, are expected to normalize, potentially impacting future growth rates.

Analysts from Barclays and Deutsche Bank maintain a more cautious stance, suggesting that much of Netflix's growth potential may already be reflected in its current valuation. Meanwhile, Piper Sandler and others have adjusted their price targets to account for the recent stock performance and anticipated adjustments in earnings and free cash flow.

Strategic Initiatives and Market Watch

Netflix's strategic initiatives, including its crackdown on password sharing and the introduction of an ad-supported subscription tier, have been pivotal in driving subscriber growth. The company's foray into live sports, exemplified by its agreement to broadcast WWE's "Raw" starting in 2025, and potential interest in acquiring NBA rights in other regions, are also areas of interest for investors and analysts alike.

The company's ad-supported tier, boasting 23 million users earlier this year, and its partnership with WWE are among the key topics investors are keen to learn more about during the earnings call. These initiatives, along with Netflix's content spending and management's interest in live-streaming sports content, are expected to be focal points for discussion.

Street Views

• Benjamin Swinburne, Morgan Stanley (Bullish on Netflix):

  "Netflix’s track record includes pivoting from DVD to streaming, scaling the world’s largest studio, and successfully monetizing password sharing. This track record, combined with new call options (ads, games, live sports) and a 25%+ EPS [compound annual growth rate], supports a premium multiple."

• Doug Anmuth, JPMorgan (Bullish on Netflix):

  "While the lowest hanging fruit was captured in 2023, we believe Netflix still has meaningful Paid Sharing monetization opportunity as it tightens filters across specific use cases & borrower cohorts."

• Eric Sheridan, Goldman Sachs (Bullish on Netflix):

  "[Goldman Sachs lifted] the firm’s estimate for net adds for the first quarter to 7.2 million from 6.6 million."

• Bryan Kraft, Deutsche Bank (Neutral/Cautiously Optimistic on Netflix):

  "Kraft estimates that Netflix has added about 20 million new accounts... But that growth will begin to fade at some point this year... We believe that in order for the stock to appreciate further, consensus estimates for 2024-2025 will need to be revised higher..."

• Kannan Venkateshwar, Barclays (Neutral/Cautious on Netflix):

  "[Venkateshwar noted] much of the company’s growth potential appears priced in and while long-term margin expectations may be too high."

• Matt Farrell Piper Sandler (Cautious/Waiting Position on Netflix): > "[Farrell is] bracing for a pullback to 'get more constructive' given the recent run in the stock and heightened expectations."

• Michael Nathanson MoffettNathanson(Neutral/Cautious)on Netlfix:> "We continue to remain cautious of pie-in-the-sky forecasts...the password-sharing crackdown was likely a pull-forward of growth and does not change the underlying fact that there are increasingly fewer and fewer households yet to subscribe"

• Jason Bazinet,Citi(Observational)on Netlfix:> "Following Netlfix's WWE rights and pending NBA rights ,we belive investors will be listening any change in tone regarding company's sports strategy"